Experts say CBN’s 2018 single-digit inflation rate target not feasible

TWO financial experts on Monday said that the 2018 single-digit inflation target of the Central Bank of Nigeria (CBN) would not be feasible, due to the downside risks occasioned by electioneering spending.

The experts expressed the viewpoint in separate interviews with the News Agency of Nigeria (NAN) in Lagos while reacting to the March inflation figure released by the National Bureau of Statistics (NBS).

Dr Uche Uwaleke, Head of Banking and Finance Department, Nasarawa State University Keffi, said that the apex bank’s single-digit inflation projection appeared impossible in a pre-election year.

Uwaleke said that the target would not be achievable following downside risks such as election spending and implementation of minimum wage.

He said that inflationary pressure would likely resume in the third quarter on the back of waning base effect and electioneering spending.

According to him, another downside risk down the road is the implementation of the minimum wage by the government, expected to kickoff in the third quarter of the year.

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Uwaleke said that the drop in the March inflation rate to 13.34 per cent, from 14.33 per cent in February, was in line with expectations.

He said that the current disinflation trajectory was expected to continue until the end of the second quarter, due to stable exchange rate and base effect.

NAN reports that base effect relates to inflation in the corresponding period of the previous year; if the inflation rate was too low in the corresponding period of the previous year, even a smaller rise in the Price Index will arithmetically give a high rate of inflation now.

On the other hand, if the price index had risen at a high rate in the corresponding period of the previous year, and recorded high inflation rate, a similar absolute increase in the Price index now will show a lower inflation rate now.

“The year on year reduction in inflation rate since February 2017 has been partly due to the base effect. That is, the fact that CPI has been computed based on previously high inflation figures,” Uwaleke said.

Prof. Sheriffdeen Tella, Professor of Economics, Olabisi Onabanjo University Ago-Iwoye, Ogun, said that the inflation pressure would heighten in the next few months with election campaigns.

Tella said that the apex bank should be at alert and formulate policies that would reduce inflationary pressure during the period.

He, however, attributed the slowdown in the inflation rate to stability in the exchange rate and low demand in the economy, due to the credit crunch by the CBN.

NAN reports that Mr Godwin Emefiele, CBN Governor, in October 2017, said that inflation rates were projected to drop and record high single-digit rates mid-2018.

Emefiele stated this while speaking with journalists at an investment conference at the London Stock Exchange.

“We are very optimistic that food prices will come down; and as they come down, it will help to complement the reduction in core inflation.

“We are hoping that by the middle of next year, we should begin to approach the high single-digits,” he said.